Celent estimates that the foreign exchange market could grow from close to USD3 trillion to USD4 trillion of daily turnover by 2009-2010, with 75 percent of the interdealer spot market volume and 50 percent of the dealer-to-client volume traded electronically.
In a new report, Electronic Platforms in Foreign Exchange Trading, Celent analyses the state of the foreign exchange market in terms of volume growth, adoption of electronic trading, and drivers for evolution. The report, also, examines the interbank platforms Reuters Dealing 3000 and EBS and the dealer-to-client platforms FX Connect, FXall, Currenex, and Hotspot FX. A collaborative effort between Reuters and the Chicago Mercantile Exchange branded FXMarketSpace is discussed briefly as well.
Despite the overall growth of the FX market, a detailed look reveals more nuances. The “real money” trading, notably from corporations covering the currency risk of their international trade business, has experienced an important but smaller increase compared to the volume of speculative trading from the hedge fund industry. Although everyone is concerned about hedge funds, the term covers a more diverse reality. Hedge funds can trade using different strategies from model trading, direction trading, momentum trading, etc. Therefore, their needs will vary widely according to their trading strategy, as will their favorite trading venues and functionalities.
“The importance of new market participants on the buy side and their ability to improve and generate liquidity is blowing the wind of change in FX markets,” says Axel Pierron, a Celent analyst and author of the report. “The segregation of the market between interdealer and dealer-to-client is already being attacked, with the two major interdealer platforms breaching the wall to attract these profitable new customers. The question to ask is not whether the FX market will adopt an exchange model, but when.”